In Asia, it is likely that mentioning of debt collectors intimidate borrowers and is not a source of pride for the credit industry due to the history shrouded in distrust and lack of transparency. For lenders, when dealing with borrowers that have fallen behind in debt payments, it is best to understand the cause of the problem and see the kind of assistance they may need to get back on track. It is possible to recover debt without the threats while still empowering borrowers. The question is how to go about it.
Many people have fallen on hard economic times because of the COVID-19 pandemic. Across Asia, the pandemic has dealt a heavy blow to many household. Businesses have failed, and millions of people have lost their jobs. Many families are grappling with the unexpected expenses that are further eating into their already meager incomes or diminish savings. For example, families with people battling COVID-19 face extra costs caring for their sick, leaving many borrowers unable to service their debts.
Understanding the financial challenges that borrowers are going through can open windows for collaboration to prevent collection drama and foster long-lasting customer loyalty. Borrowers in industries like travel, hospitality, and mining may face prolonged periods of economic hardship resulting from the pandemic. For these borrowers, debt collection agencies can reach out and work closely with them for a solution.
Assisting borrowers facing financial hardship is much required for both the communities and the financial system. Take banks, for instance. Many banks in Asia have recorded huge spikes in bad loans, resulting in capital shortfall and cripple economic growth across the region.
In Indonesia, for example, the non-performing loans ratio in the mining, trade, and manufacturing industry shot up to nearly 5% after the pandemic struck, compared to the national average of 3.1%, according to OJK data. In India, the central projects banks’ non-performing assets ratio could spike to 15% by March 2021 from 8.5% in March 2020 due to the economic impact of the pandemic. Vietnam’s rising bad loan volume is also worrying.
Assisting borrowers with overdue loans can go a long way into the bad loans problem facing banks and help speed up the much-needed economic recovery, which should be a win for both borrowers and creditors.
The Importance of Listening to Borrowers in Payment Default
Many people know that failing to pay debt can result in serious consequences that could, in turn, worsen their financial hardship. The consequences may include loss of assets, lawsuits, and difficulty obtaining credit in the future.
Debt collection shouldn’t be all about money. We need to listen and focus on the borrowers as customer satisfaction will reward you today and in the future. Financial situations can vary from account to account. Therefore, it is best to develop a personalised approach to debt collection. If the plan is right, recovery should be more efficient and optimal.
A borrower may default in debt payment because they are not aware of the debt’s existence in the first place or forget to pay on time. Therefore, it helps borrowers confirm their debt and treat them fairly and respectfully through the process. As people may forget about debt, reaching out to them with a polite reminder can lead to a prompt settlement. But you may not know what is happening with a particular borrower account unless you take time to listen and understand before initiating a debt collection process.
Some borrowers may default on payments merely because they try to avoid physical contact at a bank branch. For such borrowers, the solution could be as simple as offering contactless payment options.
Measures You can Take to Support Borrowers
It is best to contact borrowers in financial trouble early because debt recovery can be harder if they have missed payments for a long time and accumulated a huge load of overdue loans and late fees.
People in debt are often embarrassed about it. Therefore, it is best to treat borrowers with respect. People going through financial difficulties may have a hard time concentrating in a conversation. Consequently, it is best to communicate clearly when talking to borrowers with overdue debts. Clearly state their options and potential paths out of the problem.
Some people may become angry when contacted about an overdue debt. If a borrower becomes infuriated over a debt recovery call, it is best to be patient with them instead of escalating the argument.
You can open up a payment accommodation channel for impacted borrowers. For example, extending loan maturity and allows borrowers to skip payments for a period. Furthermore, actions like waiving late payment fees and extending additional credit to customers that need it may help some borrowers in financial hardship recover. Make sure to clearly communicate the changes to a borrower’s credit terms to avoid misunderstanding that could cause problems in the future.
You should activate digital self-service channels. Encourage borrowers to use online services for payment and communication. Online payment may be convenient for borrowers trying to maintain social distancing. It is essential to make payments frictionless for borrowers that can afford to service their debts.
Furthermore, imparting financial literacy can go a long way into supporting borrowers at risk of debt collection. Many people fall into financial hardship because of a lack of basic financial well-being skills. You can use digital channels to share educational information about proper money management.
Adopting an Effective Debt Collection Process
Debt recovery can be less challenging if you make the borrower understand that you care about getting them out of the problem. It is no longer about using intimidating tactics or field collection. Redefining debt collection begins with creating personalised, digital-first experiences that help borrowers overcome their financial difficulties.